Currencies are much more than a "simple" brand, but part of the value or exchange rate of a currency could be attributed to its "brand." The brand of a currency is the trust it expresses or the trust as it is perceived by the market.
There are many factors that influence an exchange rate. Differentials in interest rates is what influence exchange on the short term. In the long term exchange rates need to reflect the purchasing power of a country relevant to its trading partners. Other factors that influence the exchange rate are: the current account balance, the public debt of the government and the stability of the government which is a signal for speculators to influence the exchange rate.
When talking about the brand of an exchange rate, this brand is to be attributed to three "bodies". First of all the government which is responsible for the public debt, the central bank for the interest rates and manager of the inflation and the industry producing competitive goods and services. Consumers fit in this picture is net spenders or savers which influence the exchange rate too.
The part of the brand that can be influenced is managed by two institutions; the government and the central bank.
Some examples of exchange rates movements between the Euro (EUR), the British Pound (GBP), the US Dollar (USD) and the Swiss Franc (CHF).
The USD is in a continuous decline since 2006 compared to the EUR. This decline is parallel to the that of the USD and CHF. The GBP was stable against the EUR until the end of 2007, since than it is also in decline (from 1,50 (nov 2007) to 1,25 (jan 2008) for a euros). Now the CHF was quite stable against the Euro (0,64), but experienced a appreciation during 2007 (0,60) and moved back to 0,62 in 2008. (1)
If we only focus on the brand value of these currencies, and relate the changes only to short term factors that are due to the financial crisis, it shows that:
Baring in mind that other factors are left out, which makes this a simple view. But think about it, the brand value of the exchange rate. Like the brand value of a product of company reflecting the trust people show in it.
(1) - data from finance.yahoo.com, currency converter, 5yr charts
H.J.B.
© Hans Bool
There are many factors that influence an exchange rate. Differentials in interest rates is what influence exchange on the short term. In the long term exchange rates need to reflect the purchasing power of a country relevant to its trading partners. Other factors that influence the exchange rate are: the current account balance, the public debt of the government and the stability of the government which is a signal for speculators to influence the exchange rate.
When talking about the brand of an exchange rate, this brand is to be attributed to three "bodies". First of all the government which is responsible for the public debt, the central bank for the interest rates and manager of the inflation and the industry producing competitive goods and services. Consumers fit in this picture is net spenders or savers which influence the exchange rate too.
The part of the brand that can be influenced is managed by two institutions; the government and the central bank.
Some examples of exchange rates movements between the Euro (EUR), the British Pound (GBP), the US Dollar (USD) and the Swiss Franc (CHF).
The USD is in a continuous decline since 2006 compared to the EUR. This decline is parallel to the that of the USD and CHF. The GBP was stable against the EUR until the end of 2007, since than it is also in decline (from 1,50 (nov 2007) to 1,25 (jan 2008) for a euros). Now the CHF was quite stable against the Euro (0,64), but experienced a appreciation during 2007 (0,60) and moved back to 0,62 in 2008. (1)
If we only focus on the brand value of these currencies, and relate the changes only to short term factors that are due to the financial crisis, it shows that:
- the euro is being more appreciated by the market as a (new) brand. The financial crisis initiated in the US and affected the US Dollar.
- The Pound could initially escape from this turmoil but is also being depreciated which means that the brand is more associated with the (weaker) dollar than with the (stronger) Euro.
- Most interesting is the appreciation of the Swiss Franc. The Franc's value increased during the financial crisis where UBS one of the largest banks was heavily affected. This means that despite the financial crisis, the Swiss franc is perceived to be stronger as a currency than its newer brother, the Euro. Or in terms of credibility, the market is more confident about the Franc during a crisis than about the euro as a safe haven.
Baring in mind that other factors are left out, which makes this a simple view. But think about it, the brand value of the exchange rate. Like the brand value of a product of company reflecting the trust people show in it.
(1) - data from finance.yahoo.com, currency converter, 5yr charts
H.J.B.
© Hans Bool
No comments:
Post a Comment